The emergence of the COVID-19 pandemic spurred policyholders and businesses to turn to their insurance carriers to seek potential “business interruption” and “civil authority” coverage. Policyholders are hoping this coverage will help offset some of the losses incurred as a result of the government shutdown orders in March and April 2020, which closed “non-essential businesses” and limited the operations of “essential businesses,” in order to reduce the spread of COVID-19. Insurance coverage cases flooded the courts in a matter of months, with Northeast Ohio alone seeing well over 50 of such cases filed since March 2020.
The wheels on these “business interruption” and “civil authority” cases are starting to turn, as courts from around the United States have now had the opportunity to review motions to dismiss or motions for summary judgment filed by insurers. Thus far, the insurers have largely come out on top, with the following decisions being in favor of insurers:
- Diesel Barbershop, LLC, et al. v. State Farm Lloyd’s, U.S. District Court for the Western District of Texas, Case No. 5:20-cv-461-DAE;
- Franklin EWC, Inc., et al. v. The Hartford Financial Services Group, Inc., et al., U.S. District Court for the Northern District of California, Case No. 3:20-cv-04434-JSC;
- Gavrilides Management Co., LLC v. Michigan Insurance Company, Circuit County of Ingham, Michigan, Case No. 20-000258-CB (oral hearing);
- Infinity Exhibits, Inc. v. Certain Underwriters at Lloyd’s, et al., U.S. District Court for the Middle District of Florida, Case No. 8:20-cv-01605-JSM-AEP;
- Malaube, LLC v. Greenwich Insurance Company, U.S. District Court for the Southern District of Florida, Case No. 1:20-cv-22615-KMW;
- Rose’s 1, LLC, et al. v. Erie Insurance Exchange, Superior Court of the District of Columbia, Case No. 2020 CA 002424 B;
- Mauricio Martinez, DMD, P.A., v. Allied Ins. Co. of Am., U.S. District Court for the Middle District of Florida, Case No. 2:20-cv-00401-JLB-NPM;
- Mudpie, Inc. v. Travelers Casualty Ins. Co. of Am., U.S. District Court for the Northern District of California, Case No. 4:20-cv-03213-JST;
- Oral Surgeons PC v. The Cincinnati Insurance Company, U.S. District Court for the Southern District of Iowa, Case No. 4:20-cv-00222-CRW-SBJ;
- Pappy’s Barber Shops, Inc., et al. v. Farmer’s Group, Inc., et al., U.S. District Court for the Southern District of California, Case No. 3:20-cv-00907-CAP-BLM;
- Sandy Point Dental, PC, v. The Cincinnati Insurance Company, U.S. District Court for the Northern District of Illinois, Case No. 20-cv-2160;
- 10E, LLC v. Travelers Indemnity Co. of Conn., et al., U.S. District Court for the Central District of California, Case No. 2:20-cv-04418-SVW-AS;
- The Inns by the Sea v. California Mutual Insurance Company, California Superior Court, Monterey County, Case No. 20CV001274;
- Turek Enterprises, Inc., d/b/a Alcona Chiropractic v. State Farm Mut. Auto. Ins. Co., et al., U.S. District Court for the Eastern District of Michigan, Case No. 1:20-cv-11655-TLL-PTM; and
- Wilson v. Hartford Casualty Co., et al., U.S. District Court for the Eastern District of Pennsylvania, Case No. 2:20-03384-ER.
These courts have granted the insurers’ motions for several reasons:
First, these courts have generally ruled in favor of the insurers when the plaintiffs failed to properly plead that their business properties suffered the requisite direct physical loss or direct physical damage. The courts have found dismissal to be warranted when the plaintiffs failed to allege that the COVID-19 virus had any physical impact on the insured property, since the policy language of “direct” and “physical,” read together with “loss,” requires actual, physical damage to property in order to trigger coverage. In the cases where the plaintiffs merely allege they lost business income or incurred extra expense, due to their compliance with the government closure orders, without any other allegations of direct, actual physical damage to the property, the courts dismissed the claims.
Second, some policyholders have asserted the argument that any “loss of use” of their business property, as a result of the government closure orders, triggers coverage. Such an assertion has been routinely rejected by these courts, since the “loss of use” does not amount to direct physical loss or direct physical damage to the business property and is more in line with pure economic losses.
Third, and for the same reason, the policyholders’ requests for civil authority coverage have been denied, since there are no allegations that the government orders caused direct physical loss or damage, or that any such direct physical loss or damage occurred, to property other than the insureds’ property.
Finally, many of the insurance policies at issue contain virus exclusions, which courts have upheld and applied to bar coverage in these cases
However, policyholders have also felt victory in several cases where the courts denied the insurer’s motion to dismiss and allowed the case to proceed, with the following decisions being in favor of policyholders
- Blue Springs Dental Care, LLC, et al. v. Owners Ins. Co., U.S. District Court for the Western District of Missouri, Case No. 4:20-cv-00383-SRB;
- K.C. Hopps, Ltd. v. The Cincinnati Insurance Company, U.S. District Court for the Western District of Missouri, Case No. 4:20-cv-00437-SRB;
- Optical Services USA/JC1, et al. v. Franklin Mutual Insurance Company, Superior Court of New Jersey, Bergen County, Case No. BER-L-3681-20 (oral hearing);
- Studio 417, Inc., et al. v. The Cincinnati Insurance Company, U.S. District Court for the Western District of Missouri, Case No. 20-cv-03127-SRB; and
- Urogynecology Specialist of Florida LLC v. Sentinel Ins. Co., Ltd., U.S. District Court for the Middle District of Florida, Case No. 6:20-cv-01174-ACC-EJK.
In these cases, the policyholders have successfully argued that their initial complaints allege the COVID-19 virus particles were actually, physically present on, in, or around their business properties, thus constituting the direct physical damage or direct physical loss necessary under the policies. These courts have determined this type of allegation meets the plausibility standard for purposes of pleading a viable claim for relief. It is important to note that none of those cases, in favor of the policyholder, found coverage as a matter of law – but, instead, ruled the complaints stated a claim for relief so the insured and the insurer can continue to litigate on the merits.
As of today, no Ohio state court has ruled on any insurer’s motion to dismiss or motion for summary judgment, though the briefing continues. Weston Hurd will continue to monitor the progress of cases around the country as well as in Ohio and provide updates as important developments occur.